Euro nears 3-week low on expectations ECB to cut rates

The euro traded at almost a three-week low against the dollar amid speculation the European Central Bank will signal it is open to cutting its benchmark interest rate when policy makers meet this week.

Europe’s shared currency declined versus 11 of its 16 major counterparts after a report showed producer-price inflation in the euro-area slowed in November. The yen strengthened from almost the weakest level since July 2010 against the dollar even amid media reports that the government will announce additional stimulus measures. The franc weakened after Swiss National Bank Governing Board member Fritz Zurbruegg said the central bank can’t raise borrowing costs.

“The ECB meeting will be the focus this week,” said Jane Foley, a senior currency strategist at Rabobank International in London. “If there is more speculation about the ECB cutting interest rates that could undermine the euro against the dollar.”

The euro dropped as much as 0.4 percent to $1.3017 before trading little changed at $1.3059 at 9:01 a.m. New York time. It touched $1.2998 on Jan. 4, the lowest level since Dec. 12. The single currency fell 0.4 percent to 114.70 yen. Japan’s currency strengthened 0.4 percent to 87.84 per dollar after depreciating to 88.41 on Jan. 4, the weakest since July 15, 2010.

ECB Decision

ECB President Mario Draghi’s Governing Council, which cut economic and inflation projections last month, will keep its main refinancing rate at a record low of 0.75 percent on Jan. 10, according to the median estimate of 55 economists in a Bloomberg News survey. Five predict the central bank will reduce the benchmark to 0.5 percent.

Citigroup Inc. forecast the ECB will cut rates as soon as February. “Signals by President Draghi that the Governing Council may be moving closer to lowering rates could add to the cyclical headwinds” for the euro, London-based currency strategists Valentin Marinov and Josh O’Byrne, wrote today in a note to clients.

Producer prices in the euro region rose 2.1 percent in November from a year earlier, after a 2.6 percent increase in October, the European Union’s statistics office in Luxembourg said. Economists forecast a gain of 2.4 percent, a Bloomberg News survey showed.

Futures traders reversed bets the euro will decline against the dollar last week, positioning for the first time since August 2011 that the shared currency will appreciate, according to figures from the Commodity Futures Trading Commission.